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Pipeline Risk in Leveraged Loan Syndication

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  • Malherbe, Frédéric
  • Bruche, Max
  • Meisenzahl, Ralf R

Abstract

Leveraged term loans are typically arranged by banks but distributed to institutional investors. Using novel data, we find that to elicit investors' willingness to pay, arrangers expose themselves to pipeline risk : They have to retain larger shares when investors are willing to pay less than expected. We argue that the retention of such problematic loans creates a debt overhang problem. Consistent with this, we fi nd that the materialization of pipeline risk for an arranger reduces its subsequent arranging and lending activity. Aggregate time series exhibit a similar pattern, which suggests that the informational friction we identify could amplify the credit cycle.

Suggested Citation

  • Malherbe, Frédéric & Bruche, Max & Meisenzahl, Ralf R, 2017. "Pipeline Risk in Leveraged Loan Syndication," CEPR Discussion Papers 11956, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11956
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    More about this item

    Keywords

    Syndicated loans; Leveraged loans; Pipeline risk; Lead arranger share; Debt overhang;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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